The uncertainty of the demands of the Petroleum Exporting Countries, the great production and the skepticism, "combined with the resolution of limiting the outflow of oil prices, sharply lower the price of oil, the storm is perfect for the long-term price stability and even more pressure from the major producers in the United States.
To further understand, market participants will advise economists to call the "cobweb theorem", an economic model that helps to explain price dynamics.
Last week, oil prices dropped by 10% in volatile trade, with some market participants repeatedly repeating it. The price of the WTI mixture decreased in the third quarter less than two months to US $ 50, finishing last week from $ 76 to October 3. Some analysts warn that the market repeats its models a few years ago, when oil prices fell more than half in November 2014 for US $ 90 in January 2016 only at US $ 41.
The three different factors have lost the final price, despite the fact that, despite the other penalties in Iran, this country limits its ability to export oil:
More evidence of global economic turmoil, depressing Europe's data and increasing concerns about China's economic well-being. Operating production is strong, confirming the doubling of shale production since 2012. President Donald Trump has summoned the raids of Saudi Arabia to avoid any actions that may cause oil prices.
Saudi Arabia recently stressed its interest in stabilizing prices, if it were to reduce its production, it would be OPEC and other non-OPEC producers (especially Russia). But many market participants believe that this is an effective way to translate this into a decline in political development.
Trump has made a Twitter campaign, not only the cheapest oil price, but especially for Saudi Arabia, to prevent any downturn that prevents any action. Trump's credibility has resolved with Arab Saudi to make a decision on journalist Jamal Khashoggi's assassination. As it turned out, it would be hard to make an explicit view of Saharan officials to raise oil prices.
All of this is a short-term prediction of oil prices. In addition to lacking support for requests and supplies, the market must navigate the weakening of another stabilization anchor: OPEC coordination to balance the balance of sales and high-priced products with Russia and other producers. These developments are also a long-term solution that is more difficult, and reverses an important reverse side, and how the role of the producer's performance is carried out.
After withdrawing from a hands-off approach to the end of 2014 and shifting from OPEC swing producers, Saudi Arabia revived its traditional leadership position two years later, but increased the short-term price stability of the price stabilization. These changes were more coordinated with Russia and other OPEC producers, and they achieved greater flexibility within the OPEC. However, the position of the oil poster production is very questionable. U.S.
With a view to greater productivity and price rises, the United States is another factor in the oil market, if it is another factor in the oil market, it diminishes the traditional role of the OPEC. Unlike the OPEC, an important part of the American role, currently being the production of shale in the private sector and the direct or indirect intervention of the public sector, is shifting in a different way to the typical cycle of prices. Remember that the production of shale and the investment are reacting to price changes, although this is a long period of time (although it has been somewhat shorter in recent years).
In order to maintain the price dynamics of the result, the oil market participants should know the theoretic theorem knowledge, a very common approach to the price movements of the market sector, especially agriculture.
It simply includes a theorem regarding the assessment of the output decisions of products in response to the price evolution, and why the price does not need to adjust to the specified level of demand / supply balance, in an orderly and timely manner. Not only does it take spirals to reach the equilibrium price level but, in some cases, it can take a temporary spiral, creating price fluctuations and creating potential fractures for suppliers and consumers.
Last week, the effects of oil prices have experienced a sharp fall further than the traditional range of economic and market influences. The decline produces gradual structural changes in the market, between production, investment and consumer decisions.
Mohamed A. El-Erian Bloomberg is a pillar of opinion. Allianz is the chief economic director of Pimco, where CEO and co-CIO was. His books "Country Only Game" and "When markets Collide."